The role of asset management
A British Aerospace case study

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Page 4: Taking steps forward

British Aerospace 4 Image 4British Aerospace needed to take dramatic steps. It did this by cutting the production rate for new aircraft, shutting down the Company’s Hatfield factory and creating a new company which has now become British Aerospace Asset Management. The function of the new company was to manage existing assets effectively in order to maximise growth potential. The new Asset Management business was set up with the following objectives:

  • To understand fully and to create the means to meet British Aerospace’s exposures and obligations.
  • To create processes and methods to manage the leases and provide the environment for a good business to be achieved.
  • To create a market strategy to retain aircraft in service, reduce the idle fleet and maximise the use and return from the assets.

In order to meet these business objectives, it was necessary to create a suitable business culture. The new business was to focus on the leasing business, and was to have a small business philosophy with a flat structure and small teams. Team spirit and empowerment were to be fostered in autonomous working groups which were to work to a clearly defined business plan. The new strategy devised for British Aerospace Asset Management was termed ‘Three Steps to Heaven’. The three steps were to:

Get the idle fleet back into service

A range of financial lease packages was developed to meet the new market needs, which included short-term deals wherever necessary. Suppliers and vendors were encouraged to provide guaranteed maintenance and overhaul cost packages to these new customers to overcome the poor reputation these aircraft had gained in the market-place. However, there would be no give-away deals that would undermine the fleet’s commercial credibility.

Increase the lease rates for aircraft

It was planned to attract new customers who would enter into longer leases at higher rates. The aim was to win the business of established airlines with a high reputation who would be more likely to enter long-term leasing arrangements.

In 1992, British Aerospace’s portfolio of leases was characterised by weaker airlines with low credit ratings and small fleets which operated in geographically diverse areas and catered for niche markets. Now, however, the emphasis is on creating leases for five, six and seven years, rather than just for one or two as in the past. Fleet sizes are being increased with quality airlines.

The disposal of assets

When prices recovered (thanks to Steps 1 and 2), the strategy was to sell off the fleet as opportunities arose without negative profit and cash implications. British Aerospace Asset Management has been a great success and since 1992, has turned the fortunes of the fleet around. Staff have worked hard to develop strong working relationships with their customers in order to get to know and understand their needs. Today business is carried out with airlines which have top quality credit ratings and large fleets. The customer base is now concentrated in the world’s three most sophisticated air transport markets - North America, with operators including Air Canada and United Airlines, Australia, with Qantas, and Europe, where customers include KLM UK, Aer Lingus and Jersey European Airlines.

The key to the success of the organisation has been in matching the fleet’s varying size, age and equipment with different customers’ requirements. British Aerospace Asset Management had to develop processes for managing its asset portfolio as efficiently and successfully as possible. It created the lease cycle enabling a smooth throughput of new and ongoing leases.

British Aerospace | The role of asset management